REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL  APPEAL NOS. 2344-2347 OF 2004 COMMISSIONER  OF  SALES  TAX,  U.P

— APPELLANT  

VERSUS

M/S. SANJIV FABRICS — RESPONDENT

WITH  

CIVIL  APPEAL NOS. 6382-6383 OF 2004 M/S HARI OIL & GENERAL MILLS — APPELLANT  

VERSUS

COMMISSIONER OF SALES TAX,  U.P.

— RESPONDENT

J U D G M E N T

D.K. JAIN, J.:

1.These appeals,  by special leave,  are directed against the judgments and  

orders delivered by the High Court of Judicature at Allahabad, reversing the  

orders passed by the Sales Tax Tribunal, Meerut, (for short “the Tribunal”).  

In the first set of appeals             (No. 2344-2347/2004) the Tribunal had  

affirmed the levy of penalties on the respondent, under Section 10(b) read  

with Section 10A of the Central Sales Tax Act, 1956 (for short “the Act”)

whereas in the second set (appeals No. 6382-6383/2004), the Tribunal had  

set aside the levy of penalties under the said Section on the appellant. Since  

the  appeals  raise  a  common  question  of  law,  it  would  be  convenient  to  

dispose them of by this single judgment.

2.Shorn of  unnecessary details,  the facts  essential  for the adjudication of  

these appeals are:

C.A. Nos. 2344-2347 of 2004

The respondent (hereinafter referred to as “the dealer”) is registered  

under Section 7(2) of the Act and since the year 1977-78 is engaged in the  

business of manufacture and sale of Handloom fabrics.  

The dealer was authorized to issue Form ‘C’ on the import of cotton  

and cotton yarn as raw materials.  It  is  not in dispute that the dealer had  

imported cotton waste, polythene, sutli and tat against Form ‘C’ in order to  

avail the benefit of payment of  concessional rate of Central Sales Tax.  

On 15th October 1985, the revenue issued a notice  to the dealer to  

show cause as to why  penalty under Section 10(b) read with Section 10A of  

the Act should not be imposed on them for using Form ‘C’ for the purchase  

of  items  which  were  not  covered  by  their  certificate  of  registration.  

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Immediately on the issuance of the said notice, dated 15th October 1985, the  

dealer applied for amendment of the certificate of registration for inclusion  

of “cotton waste” in the certificate. The said amendment was granted on the  

same day.  

In reply to the show cause notice, the dealer pleaded that they were  

under a bona fide belief that “cotton” included “cotton waste”, and thus there  

was no false representation on their  part.   However, not being convinced  

with the reply, sometime in January 1986, the Assessing Authority imposed  

penalty on the dealer under Section 10(b) read with Section 10A of the Act  

amounting to Rs.18,840/-; Rs.63,822/-; Rs.55,111/- and Rs.51,141/- for all  

the four assessment years in question, viz. 1979-80, 1981-82. 1982-83 and  

1983-84 respectively, for making false representation in respect of purchase  

of tat, sutli, polythene, cotton waste, and  jute.  

The  first  appeals  preferred  by  the  dealer  were  dismissed  by  the  

Assistant Commissioner (Judicial) by two separate orders. Being aggrieved,  

the dealer filed four separate second appeals before the Tribunal.   

It appears that in the meanwhile, by an order dated 30th April 1987,  

the Tribunal, in Second Appeal Nos. 243 of 1986 for the assessment year  

1977-78;  242 of 1986 for  assessment  year  1978-79 and 550 of 1986 for  

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assessment  year  1980-81,  set  aside  the  order  of  penalty  on  purchase  of  

cotton waste on the ground that no objection was raised by the revenue for  

the previous years, and therefore, the issuance of Form ‘C’ for the purchase  

of said commodity was a bona fide error on the part of the dealer and it did  

not  involve  false  representation.  In  relation  to  other  commodities,  the  

Tribunal remanded the matters for re-fixation of penalty.  However, when  

appeals for the present assessment years were taken up, notwithstanding its  

earlier orders, the Tribunal vide order dated 22nd January 1991, affirmed the  

orders levying penalty,  inter-alia  observing that for the purposes of sales  

tax, cotton and cotton waste are two different commodities and the fact that  

the dealer had deliberately used Form ‘C’ to import items like cotton waste,  

sutli, tat etc., established that the dealer had imported the goods by making a  

false representation and had taken the benefit  of concessional  rate of tax  

unauthorizedly. According to the Tribunal, these circumstances proved the  

mala fide on the part of the dealer. Finally, distinguishing its earlier orders  

on the ground that in those cases, the matter was remanded and it remained  

unclear as to how the matter had proceeded further; the Tribunal reduced the  

amount of penalty imposed.

Being dissatisfied with the order of the Tribunal,  dated        22nd  

January 1991, the dealer filed Sales Tax Revisions before the High Court of  

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Allahabad.  The only dispute which was put in issue in these revisions was  

with regard to the levy of penalty for use of Form ‘C’ on the purchases of  

cotton waste.

As  stated  above,  by  the  impugned  judgment  the  High  Court  has  

allowed the revision petitions, inter alia, observing:

“Cotton”  and “Cotton  Waste”  are  two different  commodities  known  to  Sales  Tax  Laws.  However,  there  is  not  much  distinction  from  the  point  of  view  of  ordinary  people.  The  applicant is a registered dealer since the assessment year 1977- 78  and  has  been  making  purchases  of  “Cotton  waste”  and  issuing Form-C thereof since then. The department earlier than  15th October, 1985 raised no objection. This as was submitted  by  the  learned  counsel  for  the  applicant  is  very  relevant  circumstance  for  determination  of  the  question  “false  representation” occurring in Section 10(b) of the Act………… ……………………………………. …………………………..……………………………………… ………………………………………………………………….. When  Tax  Laws  are  so  complex  the  administration  should  proceed  specially  in  the  penalty  matter  from  the  view  of  ordinary  citizen  who  is  always  willing  to  comply  with  the  conditions  of  law.  The assessee  as  soon as  it  came to know  about  its  (sic)  fault  filed  application  for  amendment  of  registration  certificate.  Some  fault  was  on  the  part  of  the  department also for maintaining silence over the period of about  eight years.”

C.A.Nos.6382-6383 of 2004

The appellant herein (hereinafter again referred to as “the dealer”) was  

carrying on the business of manufacture and sale of oil and oil cakes and  

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was  registered  under  Section  7  of  the   Act.   It  appears  that  during  the  

assessment proceedings relating to the assessment years 1985-86 and 1986-

87, the Assessing Authority found that the dealer had issued Form ‘C’ for  

the import of oil seeds from outside the State and had availed of the benefit  

of concessional rate of tax by issuing Form ‘C’ in respect of the said item,  

which  was  not  included  in  their  registration  certificate.   Accordingly,  a  

notice was issued to the dealer under Section 10(b) read with Section 10A of  

the Act to show-cause as to why penalty under the said provisions should  

not be levied on them.

Not  being  satisfied  with  the  reply  furnished  by  the  dealer,  the  

Assessing  Authority  levied  penalty  in  the  sum  of  Rs.73298.60p.  and  

Rs.2,08,064/- for the assessment years 1985-86 and 1986-87 respectively.

Dealer’s  first  appeal  to  the  Deputy  Commissioner  (Appeals)  

pertaining to the assessment years 1985-86 was partly allowed in as much as  

the quantum of penalty was reduced to Rs.1075/- but on merits, appeals for  

both  the  assessment  years  were  rejected.   Being  aggrieved,  the  dealer  

preferred two second appeals before the Tribunal.  Inter alia, observing that  

apart from the fact that in the application under Section 7(1) and 7(2) of the  

Act in Form ‘A’, the word ‘oil seed’, mentioned in an inappropriate column-

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16-GHA was  deleted, the dealer was also under a bona fide belief that they  

were authorized to purchase oil seeds against Form ‘C’ as the department  

had been regularly issuing Form ‘C’ to them for the purchase of oil seeds,  

the Tribunal set aside the penalty levied on the dealer under Section 10(b) of  

the  Act.

Not being satisfied with the order passed by the Tribunal, the revenue  

took the matter in revision to the High Court.  As afore-stated, the High  

Court  came to the  conclusion that  the  order  of  the Tribunal  deleting the  

penalty  was  erroneous.   However,  having  regard  to  the  facts  and  

circumstances of the case, the High Court held that since the revenue had  

been regularly issuing Form ‘C’ in spite of details being furnished by the  

dealer, penalty only to the extent of benefit availed by the dealer i.e. @ 4%  

should  be  levied.   Accordingly,  the  High  Court  reduced  the  penalty  to  

Rs.27,275/-  and  Rs.66,955/-  in  respect  of  assessment  years  1985-86  and  

1986-87 respectively.  

3.Hence both the revenue and the dealer are before us in these appeals.

4.We have heard learned counsel for the parties.

5.Mr. Aarohi Bhalla, learned counsel appearing for the revenue contended  

that the judgment of the High Court deleting the penalty is erroneous in as  

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much as the revisionary jurisdiction of the High Court under Section 11 of  

the  UP  Trade  Tax  Act,  1948  is  very  limited  and  confined  only  to  an  

examination of the question of law.  Section 11 of the UP Trade Tax Act  

does not contemplate re-evaluation of the evidence by the High Court and,  

therefore, the High Court cannot interfere with a finding of fact as has been  

done in the present case. In support of the contention, learned counsel relied  

on  the  decision  of  this  Court  in  Commissioner  of  Sales  Tax,  U.P. Vs.  

Kumaon Tractors & Motors1.   

6.Learned counsel also submitted that mens rea is not an essential ingredient  

of  the offence under Section 10(b)  of the Act,  as  penalty under the said  

provision  is  in  the  nature  of  a  civil  liability.   According  to  the  learned  

counsel, it is only when the prosecution is launched pursuant to a sanction  

under  Section  11  of  the  Act,  the  requirement  of  mens  rea assumes  

importance as the “offence” comes into existence only when a sanction is  

received. To buttress his argument, learned counsel commended us to the  

decision of this Court in R.S. Joshi, Sales Tax Officer, Gujarat & Ors.  Vs.  

Ajit Mills Ltd. & Anr.2, in particular to the following observation:  

“The classical view that 'no mens rea, no crime' has long ago  been eroded and several laws in India and abroad, especially  

1 (2002) 9 SCC 379 2 (1977) 4 SCC 98

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regarding  economic  crimes  and  departmental  penalties,  have  created severe punishments even where the offences have been  defined to exclude mens rea.”

Reliance  was  also  placed  on  the  decisions  of  the  High  Courts  in  Dyer  

Meakins Breweries Ltd. Vs.  U.P.3; CST Vs. M/S Rama & Sons4;  Vijaya  

Electricals Vs. State of Tamil Nadu5 and Integrated Enterprises Vs. State  

of Kerala6 in support of the same proposition.  It was asserted that in the  

present cases the items which were included in the Registration Certificate  

were clearly different and distinct from the items for which Form ‘C’ were  

issued and therefore,  the dealers could not  claim that  it  was a  bona fide  

omission on their part.

7. Mr. Dhruv Agarwal, learned senior counsel appearing for the dealers in  

both the cases, on the other hand, submitted that since under Section 10A of  

the  Act,  in  case of  offence under  Section 10(b)  of  the  Act,  discretion is  

conferred  on  the  Assessing  Authority  to  levy  penalty  in  lieu  of  the  

prosecution of  the dealer, the requirement of  mens rea would be sine qua  

non for attracting  the said penal  provision.   In support,  learned counsel  

relied  on  the  decision  of  this  Court  in  Bharjatiya  Steel  Industries Vs.   

3 [1974 UPTC 566 (All)] 4 [1999 UPTC 425 (All)] 5 [1991] 82 STC 268 (Mad.) 6 [1980] 46 STC 103 (Ker.)

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Commissioner,  Sales  Tax,  Uttar  Pradesh7.   Learned counsel  argued that  

since in both the cases, the dealers had been issued Form ‘C’ in respect of  

the same very items in the previous years  regularly without any objection  

by the revenue, the dealers entertained a  bona fide belief that these items  

were  covered  under  the  Registration  Certificate,  penalties  under  the  said  

provision were not leviable on the dealers.  Relying on the decision of this  

Court  in  Commissioner  of  Sales  Tax  Vs.  Govind  Ram  Bhagat  Ram8,  

learned counsel submitted that in the case of M/s Hari Oil & General Mills  

(C.A.Nos.6382-6383 of 2004),  the High Court should not have interfered  

with the findings of fact recorded by the Tribunal to the effect that since  

Form ‘C’ were being issued regularly by the revenue for the purchase of oil  

seeds without any objection for the last five years and the accounts rendered  

in that behalf had been verified and accepted by the Assessing Authority, it  

could not be held that the dealer had made false representation while making  

purchases of oil seeds against the said forms.  

8.Thus,  the  first  and  the  foremost  issue  arising  for  our  consideration  is  

whether the requirement of mens rea is an essential ingredient for the levy of  

penalty under Section 10(b) read with Section 10A of the Act?    

7 (2008) 11 SCC 617 8 (1996) 7 SCC 92

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9.In  order  to  answer  the  point  formulated for  consideration,  it  would  be  

necessary to refer to the relevant provisions of the Act.  Section 10 of the  

Act deals with penalties.  It reads as under:

“10. Penalties.—If any person—

(a) furnishes a declaration under sub-section (2) of section 6  or sub-section (1) of section 6A or sub-section (4) or sub- section (8) of section 8, which he knows, or has reason to  believe, to be false; or

(aa) fails to get himself registered as required by section 7 or  fails to comply with an order under sub-section  (3A) or  with he requirements of sub-section 3(C) or sub-section  (3E) of that section;

(b) being  a  registered  dealer,  falsely  represents  when  purchasing any class of goods that goods of such class  are covered by his certificate of registration; or

(c) not  being  a  registered  dealer,  falsely  represents  when  purchasing  goods  in  the  course  of  inter-State  trade  or  commerce that he is a registered dealer; or

(d) after  purchasing  any  goods  for  any  of  the  purposes  specified in clause (b) or clause (c) or clause (d) of sub- section (3) or sub-section (6) of section 8 fails, without  reasonable excuse, to make use of the goods for any such  purpose;

(e) has in his possession any form prescribed for the purpose  of sub-section (4) or sub-section (8) of section 8 which  has not been obtained by him or by his principal or by his  agent in accordance with the provisions of this Act or any  rules made thereunder;

(f)  collects any amount by way of tax in contravention of the  provisions contained in section 9A,         

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he shall  be punishable with simple  imprisonment  which may  extend to six months, or with fine or with both; and when the  offence is a continuing offence, with a daily fine which may  extend to fifty rupees for every day during which the offence  continues.”  

Section 10A of the Act provides for the imposition of penalty in lieu of  

prosecution.  Sub-section (1) of the said Section, relevant for our purpose,  

reads as follows:

“10A. Imposition of penalty in lieu of prosecution— (1) If  any  person  purchasing  goods  is  guilty  of  an  offence  under  clause (b) or clause (c) or clause (d) of section 10, the authority  who granted to him or,  as  the case may be,  is  competent  to  grant  to him a certificate  of registration under this  Act may,  after  giving him a reasonable opportunity of being heard,  by  order in writing, impose upon him by way of penalty a sum not  exceeding one and a half times the tax which would have been  levied under sub-section (2) of section 8 in respect of the sale to  him of the goods, if the sale had been a sale falling within that  sub-section:  

Provided that no prosecution for an offence under section  10 shall be instituted in respect of the same facts on which a  penalty has been imposed under this section.”  

10.Section 10 of the Act not only enumerates seven types of violations of the  

provisions  of  the  Act  which constitute  an  “offence”,  it  also  makes  them  

punishable  by  prosecution  and  punishment,  which  ranges  from  simple  

imprisonment for a period, which may extend to six months, or fine or both  

and in a case of continuous offence, the Section provides for a daily fine.  

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Section 10A of the Act provides for the imposition of penalty in lieu of  

prosecution.  It provides that if any person purchasing goods is guilty of an  

offence under clause (b) or clause (c) or clause (d) of Section 10 of the Act,  

a penalty of fine may be imposed.  Thus, the violations enumerated in clause  

(b),  clause (c) and clause (d) of Section 10 may not necessarily result  in  

prosecution with the possible imposition of sentence of imprisonment as an  

alternative is provided in respect of these violations.

11.Therefore, what we are required to construe is whether the words “falsely  

represents” would cover a mere incorrect representation or would embrace  

only such representations which have been made knowingly, wilfully and  

intentionally.

12.Whether  an  offence  can  be  said  to  have  been  committed  without  the  

necessary  mens  rea  is  a  vexed  question.  However,  the  broad  principle  

applied  by  the  courts  to  answer  the  said  question  is  that  there  is  a  

presumption that mens rea is an essential ingredient in every offence but the  

presumption  is  liable  to  be  displaced  either  by  the  words  of  the  statute  

creating the offence or by the subject matter with which it deals and both  

must  be  considered.  (See:  Sherras Vs. De  Rutzen9 and  State  of   

Maharashtra Vs. Mayer Hans George10). 9 [1895] 1 QB 918 10 AIR 1965 SC 722

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13.Although in  relation  to  the  taxing  statutes,  this  Court  has,  on  various  

occasions,  examined  the  requirement  of  mens  rea  but  it  has  not  been  

possible to evolve an abstract principle of law which could be applied to  

determine the question. As already stated, answer to the question depends on  

the object of the statute and the language employed in the provision of the  

statute creating the offence.  There is no gain saying that a penal provision  

has to be  strictly construed on its own language.  In Nathulal Vs. State of   

Madhya Pradesh11, while dealing with the question whether to constitute an  

offence  under  Section  7  of  the  Essential  Commodities  Act,  1955  which  

provides  for  levy  of  penalty  for  contravention  of  any  order  made  under  

Section 3 of the State Act mens rea is an essential ingredient, a three-Judge  

Bench of this Court observed as follows:  

“Mens  rea  is  an  essential  ingredient  of  a  criminal  offence.  Doubtless a statute may exclude the element of mens rea, but it  is  a  sound rule  of  construction adopted in  England and also  accepted in India to construe a statutory provision creating an  offence in conformity with the common law rather than against  it  unless  the  statute  expressly  or  by  necessary  implication  excluded mens rea. The mere fact that the object of the statute  is to promote welfare activities or to eradicate a grave social  evil is by itself not decisive of the question whether the element  of guilty mind is excluded from the ingredients of an offence.  Mens  rea  by  necessary  implication  may be excluded from a  statute only where it is absolutely clear that the implementation  of the object of the statute would otherwise be defeated. The  nature  of  the  mens  rea  that  would  be  implied  in  a  statute  

11 AIR 1966 SC 43

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creating an offence depends on the object of the Act and the  provisions thereof.”

14.In Union of India & Ors. Vs. Dharamendra Textile Processors & Ors.12,  

while examining the scope of Section 11-AC of the of the Central Excise  

Act, 1944, a three judge Bench of this Court, observed that:

“A penalty imposed for a tax delinquency is a civil obligation,  remedial and coercive in its nature, and is far different from the  penalty  for  a  crime  or  a  fine  or  forfeiture  provided  as  punishment for the violation of criminal or penal laws.”

15.However, in Union of India Vs. Rajasthan Spinning &  Weaving Mills13,  

this Court observed that:  

“We fail to see how the decision in  Dharamendra Textile can  be said to hold that Section 11-AC would apply to every case of  non-payment  or  short-payment  of  duty  regardless  of  the  conditions  expressly  mentioned  in  the  section  for  its  application…The  decision  in  Dharamendra  Textile must,  therefore, be understood to mean that though the application of  Section 11-AC would depend upon the  existence or otherwise  of the conditions expressly stated in the section.”

(Emphasis supplied by us)

16.In  M/s  Gujarat  Travancore  Agency,  Cochin Vs. Commissioner  of   

Income Tax, Kerala, Ernakulam14, the question that arose for consideration  

was whether Section 271(1)(a) of the Income Tax Act, 1961 required the  12 (2008) 13 SCC 369 13 (2009) 13 SCC 448  14 (1989) 3 SCC 52

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existence of mens rea. While holding that the said Section dealt merely with  

a  failure  to  file  return,  and hence  no  mens rea was  required,  this  Court  

observed thus:

“It  is  sufficient  for  us  to  refer  to  Section  271(1)(a),  which  provides  that  a  penalty  may  be  imposed  if  the  Income  Tax  Officer is satisfied that any person has without reasonable cause  failed to furnish the return of total income, and to Section 276- C which provides that if a person wilfully fails to furnish in due  time the return  of  income required under  Section 139(1),  he  shall  be  punishable  with  rigorous  imprisonment  for  a  term  which may extend to one year or with fine. It is clear that in the  former case what is intended is a civil obligation while in the  latter what is imposed is a criminal sentence.  There can be no  dispute that having regard to the provisions of Section 276-C,  which speaks of wilful failure on the part of the defaulter and  taking  into  consideration  the  nature  of  the  penalty,  which  is  punitive,  no  sentence  can  be  imposed  under  that  provision  unless the element of mens rea is established.”

(Emphasis supplied by us)

17.To  put  it  succinctly,  in  examining  whether  mens  rea is  an  essential  

element of an offence created under a taxing statute, regard must be had to  

the  following  factors:  (i)  the  object  and  scheme  of  the  statute;  (ii)  the  

language of the section and; (iii) the nature of penalty.

18.It is true that the object of Section 10(b) of the Act is to prevent any  

misuse  of  the  registration  certificate  but  the  legislature  has,  in  the  said  

Section,  used  the  expression  “falsely  represents”  in  contradistinction  to  

“wrongly  represents.”  Therefore,  what  we  are  required  to  construe  is  

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whether  the  words  “falsely  represents”  would  cover  a  mere  incorrect  

representation  or  would  embrace  only  such  representations  which  are  

knowingly, wilfully and intentionally false.

19.According to the Black’s Law Dictionary (6th Edition), the word “false”  

has  two  distinct  and  well-recognized  meanings:  (1)  intentionally  or  

knowingly  or  negligently  untrue;  (2)  untrue  by  mistake  or  accident,  or  

honestly after the exercise of reasonable care.  A thing is called “false” when  

it is done, or made, with knowledge, actual or constructive, that it is untrue  

or illegal, or is said to be done falsely when the meaning is that the party is  

in fault for its error.

20.Likewise,  P.  Ramanatha  Aiyar  in  Advance  Law Lexicon  (3rd Edition,  

2005) explains the word “false” as:

“In the more important uses in jurisprudence the word implies  something more than a mere untruth; it is an untruth coupled  with a lying intent……or an intent to deceive or to perpetrate  some treachery or fraud.  The true meaning of the term must, as  in other instances, often be determined by the context’.”

21.In Cement Marketing Co. of India Ltd.  Vs.  Assistant Commissioner of   

Sales Tax, Indore & Ors.15, a similar question fell for consideration of this  

Court.   In  that  case,  a  penalty  under  Section 43 of  the  Madhya Pradesh  

15 (1980) 1 SCC 71

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General Sales Tax Act, 1958 and Section 9(2) of the Act was imposed on the  

dealer on the ground that he had furnished false returns by not including the  

amount of freight in the taxable turnover disclosed in the returns.  Allowing  

the appeal of the dealer, this Court had observed as under:

“What Section 43 of the Madhya Pradesh General Sales Tax  Act, 1958 requires is that the assessee should have filed a 'false'  return and a return cannot be said to be 'false' unless there is an  element of deliberateness in it. It is possible that even where the  incorrectness of the return is claimed to be due to want of care  on  the  part  of  the  assessee  and  there  is  no  reasonable  explanation  forthcoming  from the  assessee  for  such  want  of  care, the Court may, in a given case, infer deliberations and the  return may be liable to be branded as a false return. But where  the assessee does not include a particular item in the taxable  turnover  under  a  bona  fide  belief  that  he is  not  liable  so  to  include it,  it  would not  be right  to  condemn the return as  a  'false' return inviting imposition of penalty.”

The Court finally held that it was elementary that Section 43 of the State Act  

which provided for imposition of penalty is penal in character and unless the  

filing of an inaccurate return is accompanied by a guilty mind, the section  

cannot be invoked for imposing penalty.  It was emphasised that if the view  

canvassed by the Revenue were to be accepted, the result would be that even  

if a dealer raises a bona fide contention that a particular item was not liable  

to be included in the taxable turnover, he will have to show it as forming  

part of the taxable turnover in his return and pay taxes upon it on pain of  

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being held liable for penalty in case his contention is ultimately found by the  

Court to be not acceptable. That surely could never have been the intention  

of the Legislature.

22.In view of the above, we are of the considered opinion that the use of the  

expression “falsely represents” is indicative of the fact that the offence under  

Section  10(b)  of  the  Act  comes  into  existence  only  where  a  dealer  acts  

deliberately  in defiance of law or is  guilty  of contumacious  or  dishonest  

conduct. Therefore, in proceedings for levy of penalty under Section 10A of  

the  Act,  burden  would  be  on  the  revenue  to  prove  the  existence  of  

circumstances constituting the said offence.  Furthermore, it is evident from  

the heading of Section 10A of the Act that for breach of any provision of the  

Act, constituting an offence under Section 10 of the Act, ordinary remedy is  

prosecution which may entail a sentence of imprisonment and the penalty  

under Section 10A of the Act is only in lieu of prosecution.  In light of the  

language employed in the Section and the nature of penalty contemplated  

therein,  we  find  it  difficult  to  hold  that  all  types  of  omissions  or  

commissions  in the use of  Form ‘C’ will  be embraced in the expression  

“false representation”.  In our opinion, therefore,          a finding of mens rea  

is a condition precedent for levying penalty under Section 10(b) read with  

Section 10A of the Act.

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23. That takes us to the next question viz. whether on the facts of the two  

cases before us it could be said that the dealers had purchased the goods in  

question and furnished Form ‘C’ in respect of those goods knowing that the  

said  goods  were  not  covered  by  their  certificates  of  registration  and,  

therefore, the requirement of mens rea was satisfied.

24.As regards, the first set of appeals, as afore-stated, the High Court has  

deleted the penalty on the ground that  apart  from the fact that on earlier  

occasions the department had not raised any objection while issuing Form  

‘C’  to  the  dealer,  the  dealer  filed  an  application  for  amendment  of  the  

registration certificate as soon as he learnt about his fault.  It is evident from  

the impugned judgment that the High Court has lost sight of the fact that the  

dealer had used Form ‘C’ to import items like sutli, tat, etc., in addition to  

the cotton waste.  Assuming that the dealer was of the bona fide belief that  

cotton included the cotton waste, it is hard to believe that there was some  

confusion in the mind of the dealer in so far as other items were concerned.  

Similarly,  in  the  second set  of  appeals,  it  is  evident  from the  impugned  

judgment that the High Court has not examined the explanation furnished by  

the dealer that they were under a bona fide belief that they were authorized  

to  purchase  oil  seeds against  Form ‘C’   issued to  them regularly  by  the  

department  without  any  objection.   It  is  manifest  that  the  High  Court  

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proceeded to examine the case of the  dealer  on the premise that  offence  

under Section 10(b) of the Act was an absolute offence.

25.Under  the  given  circumstances,  we  are  of  the  opinion  that  the  

explanations furnished by the dealers in both the cases require a fresh look  

by the authority competent to levy penalty under Section 10A of the Act, in  

light of the aforesaid enunciation of law.   

26.Resultantly, both the appeals are allowed; the impugned judgments are  

set  aside  and all  the  appeals  in  both  the  cases  are  remitted  back  to  the  

adjudicating authority for fresh consideration as to whether on the facts and  

circumstances  of  both the  cases,  penalties  under  Section 10(b)  read with  

Section 10A of the Act are leviable.  Needless to add that the said authority  

shall take fresh decisions on the merits of each case untrammelled by any  

observation in the impugned orders or by us in this judgment.  There shall,  

however, be no order as to costs.

…..……………………………J.                (D.K. JAIN)  

                             ..……………………………….J.               (H.L. DATTU)

NEW DELHI;

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SEPTEMBER 10, 2010.

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